Increase in Government Revenue.
One of the strongest points of an indirect taxation is that it allows everyone to pay to contribute to the common purse because the poor is not exempted. I therefore find it strange and a voodoo economic analysis for someone to argue that VAT hike do not affect the poor. In fact, sometimes indirect taxes like the one under review are paid without the payer knowing because anyone that consumes a targeted product or service is obligated to pay. So, government is focusing on your consumption pattern to soar its revenue.
Reduction in Borrowing
Another point going for this current administration is that this could reduce the budget deficit albeit marginally and reduce borrowing which has been a big deal for the country. The pressure to reduce debt servicing currently at N2.1 trillion could have made the government to look inward to boost its revenue drive. There is also the argument of how to fund the minimum wage recently passed into law. It may seem rational to ensure that everyone pays since the bulk of the money is spent at states and local government levels at 85% while the Federal Government spent only 15%.
The International Monetary Fund (IMF) puts the contribution of this sector to GDP at over 60% which to every sane mind is substantial to the growth of the Nigeria economy. Consequently, government policies must be fashioned in such a way that this sector is not impeded. The fact that we have more people and businesses out of the tax net should send a clear signal and directive to the government. Government may lose some of the revenue it currently enjoys from this sector as businesses attempt to beat the system or evade the proposed new VAT of 7.5%.
The Nigeria economy is growing at a decreasing rate of less than 2% going by the recent statistics released by NBS. The fact that the economy suffered a recession in the recent past should serve as a lesson to the government on the type of policy choice to be made. The fundamental of the economy may remain strong but experts say it is fragile in nature. As such, government’s focus should be on policies that would boost productivity and encourage consumer spending. For instance, the ease of doing business policy will amount to a contradiction if the hike is implemented.
Riding a willing Horse to death
The fact that less of the economy activities are within the compass of the tax authority is an indication that those who are currently paying will pay more why many other will remain outside the tax net. In a country of about 200m in population, a work force of about 115.5m and tax payers of 35 million from 20 million(JTB).There is certainly apathy to paying taxes which is not unconnected with misused and abuse of public fund by successive governments. This lukewarm attitude is likely to continue if this hike in VAT sees the light of the day.